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The benchmark indices brushed aside concerns about the autonomy of the central bank and jumped 2 per cent to post their biggest single-day gain in two weeks.

Banking shares, which have significant weight in the benchmark indices, led the gains on reports that relaxation to the prompt corrective action (PCA) framework could be in the offing to enable more sanction of credit by public sector banks. Also, a Rs 400-billion bond-purchase announcement by the Reserve Bank of India (RBI) helped ease liquidity concerns.

Private lender ICICI Bank climbed nearly 11 per cent to Rs 349.20 apiece on Monday after reporting better-than-expected September quarter numbers. The State Bank of India and another half a dozen state-owned banks rallied more than 8 per cent each. The BSE benchmark Sensex closed 718.09 points, or 2.15 per cent, higher at 34,067.40 after surging over 800 points intra-day.

The Nifty 50 ended 220.85 points, or 2.20 per cent, higher at 10,250.85.

The BSE MidCap and SmallCap indices rose 2.8 per cent and 2.1 per cent, respectively.

In the previous session, the benchmark Nifty had closed at its lowest level in seven months amid concerns over trade wars and global crude oil prices, coupled with the liquidity tightness.

Sharp gain in stocks also sent the market capitalisation of the BSE-listed companies higher by Rs 3.11 trillion to Rs 136.43 trillion.

Some analysts attributed the bounce to technical factors, stating Friday’s close was key support level for the Nifty and in the past too it had rebounded from similar levels.

Brokerages remained cautious, given the structural headwinds on the horizon. “Indian markets' performance in the past two to three years has been aided by local liquidity, including retail flow, which is vulnerable and slowing. The 10-year government bond and earnings yield gap, at a historical high, looks unsustainable. Valuation de-rating is likely for overall markets,” said Gautam Chhaochharia, analyst, UBS Securities India.

The brokerage has set a December target of 10,500 for the Nifty and states that upside and downside scenarios of 11,900 and 8,800 suggest unattractive risk-reward for Indian markets despite the recent correction.

The mood in Asia was mixed with benchmark indices falling in Tokyo, China and South Korea and gaining in Hong Kong and Australia. Major European indices such as the FTSE and DAX were trading in the green. Back home, about 66 per cent, or 1,816, BSE stocks advanced on Monday. Out of the 50 Nifty, eight climbed and all of the 19 sectoral sub-indexes compiled by BSE rose, with the BSE Healthcare surging the most at over 4 per cent. Shares of Dr Reddy’s gained 5.44 per cent to end at Rs 2,534.75 on the BSE after the drug maker reported a good operational performance in the September quarter. Realty, Capital Goods, PSU, Energy, Infra and Bankex indices rose more than 3 per cent.

The rupee was flat against the dollar on Monday, but is down 13 per cent year-to-date, making it the worst-performing currency in Asia. Global crude oil prices eased to $77 per barrel. Prices have been hovering near $85 per barrel for past several weeks on fears that the impending sanctions on Iran’s petroleum industry would lead to constricted supplies. Cooling off of global crude prices is a positive sign for the market, said experts. Apart from the earnings season, market movement will also be dictated in part by poll in five Indian states in the next two months. The polls assume significance in the run-up to the general elections that are due in May next year.